Content Flashcards

Question

Low and stable i +

Answer 1

Higher w=more morale Natural c (not encouraged) Can keep u low in recession by not increasing w in line with inflation Reduced value of debt Fiscal drag (+higher p means more vat and public sector wages decline in real terms)

Answer 2

Double counting (fixed by final value) Informal activity (illegal, bm, diy, gardening) Errors due to vast data collection Nothing about individual y Negative externalities (quant not quality) Y inequality Health education freedom gender equality working conditions Capital vs consumer output

Answer 3

D side Strong domestic growth Recession overseas Strong ex rate S side Low I productivity reliability quality High relative i and ulc Depletion of resources

Answer 4

(X-m) decreases so ad decreases Debt burdens (+lose faith to payback) Weaker ex rate causes m inflation

Answer 5

Weaken currency - by lower ir or qe (Marshall Lerner, m inflation, retaliation) Contractionary monetary or fiscal policy - lower y means lower m (conflicts of interest, confidence, multiplier, mpm, level of output gap) Protectionism (retaliation, m inflation, wto rules, lazy dom comp, high p) SSPs - increase lras reduce i increase x (standard -s) Eval Targeted solns needed Conflict of objectives Cause of ca deficit (d vs s side) Time lags Cost Size of deficit (is it a problem)

Answer 6

Gov rev Influence macroeconomy Reduce y inequality Correct mf (demerit) Protectionism

Answer 7

+ More profit = more I higher w and more jobs = more disposable y Fiscal dividend (y, vat, corporation, tariffs) - High inflation reducing purchasing power and living standards Ca deficit More income inequality Environmental costs Eval No guarantee of equal distribution (y inequality) Sustainability in lr (without inflation and environmental costs) Need inclusive growth Need sustained and continuous over time

Answer 8

Labour market reform Lower benefits wmin tu power More immigration More education training health Tax reform Lower y and corporation Comp policy Privatisation Deregulation Trade liberalisation Increase I and infrastructure Lower wars natural disasters pandemic All will increase Efficiency Productivity Incentives Comp

Answer 9

No guarantee of success Costly Time consuming Stakeholder impacts (labour market and deregulation) Targeted ssps needed Unintended consequences (eg poverty and lower job security due to lower tu)

Answer 10

W (home and abroad) Raw materials p Oil p Business p (vat) Import p (spiced wpidec)

Answer 11

Inefficient regulation Lower fdi (acting against initial intentions) Bribes (extra costs) Projects/resources given to highest bidder (not most efficient)

Answer 12

Tech advancements Loss of ca Change in consumer preferences

Answer 13

D side Boom abroad Recession home Weak ex rate S side Low relative i, ulcs High I Gains in ca so high x New resource discoveries

Answer 14

Increasing (x-m) increases ad etc X>m increasing d for currency so spiced therefore may revert to deficit Fa deficit so may buy bad debt Harm int relations if dodgy method of surplus causing trade wars or retaliation Reliance on x growth = unbalanced economy

Answer 15

Level of real disposable y at home/ abroad (increase=larger mpc/mpi increasing c/m increasing ad) Ir and availability of credit (borrowing/saving and variable rate mortgages) Consumer and business confidence Taxes Indebtedness

Answer 16

Strength of ex rate Protectionism at home and abroad Relative inflation rates Natural resource levels

Answer 17

Range and trustworthiness of financial institutions Tax incentives eg isas Age structure of pop

Answer 18

Spare capacity Level of comp P of capital

Answer 19

Deforestation (flooding risk) Air pollution Desertification Soil erosion Resource depletion Resource degradation Reduces biodiversity

Answer 20

+ More workers lower cost and can choose higher productivity Lower i as workers have lower w bargaining power so lower w costs of production p Improve ca as lower y lower m - Less y so less c so less gdp so less ad Less tax revenue and more benefits spending Hysteresis (Reduction of skills - outdated/forgotten) Lower living standards (poverty crime) Eval Rate (at nru unless its very high) Duration (lt means higher risk of hysteresis) Type (structural is worst - occupational very hard to change - frictional not bad and cyclical will end as recessions don’t last forever) Distribution (worst group is youth as will become lt u so hysteresis)

Answer 21

Cyclical u Expansionary fiscal and monetary policy Real w u Reduce wmin tu strength (y inequality and living standards)

Answer 22

Interventionist ssps More g on education training transport infrastructure More subsidies for in work training Grants/low cost housing Market based ssps Reduce benefits Deregulate hiring and firing

Answer 23

Interventionist ssps More resources for job centres and private job agencies More g on infrastructure Market based ssps Lower benefits

Answer 24

+ Lower dp i Reduce ca deficit Lower debt More sustainable borrowing Flexibility to reduce ir in future - Lower growth Lower I reducing competitiveness Increase u More expensive to service debts (no i)

Answer 25

+ More growth Lower u More lras (health education infrastructure) Lower y inequality Laffer curve increasing t due to tax cuts Crowding in - More dp i Ca deficit Worsening of gov finances Crowding out Xi as no profit motive Time lags Income inequality increases Eval Size of output gap Size of multiplier Consumer and business confidence State of gov finances Lr returns to gov Stage of economic cycle Laffer curve Crowding out vs in

Answer 26

Ulcs (total labour costs/output) Global competitiveness index Tot (increase means worse p comp of g/s)

Answer 27

Ssps - Ssps - Competitiveness is a relative concept

Answer 28

+ Standard + of trade - Resource curse (p may reduce in future, resources deplete) Very susceptible to p fluctuations (s and d both p inelastic) - reduces stability I and fdi Prebisch singer hypothesis (lt decline in tot) Tariff escalation

Answer 29

Politicians act in their self interest Capital flight

Answer 30

+ Productivity Job potential y qol standards of living choice Gender equality = health and education Health Tech - Cost If private sector = excludability

Answer 31

Systemic risk Cost to taxpayer of bank bailouts Loss of individual savings Loss of jobs y and growth (recession)

Answer 32

Useful natural resources Emerging/growing markets Low cost of labour Low regulations/standards

Answer 33

+ Broad - uses lots of indicators Focus on developmental outcomes Allows for progress to be measured over time Attention focus on countries with low development Used as standard around the world - Does not measure distribution of y (inequality) Long life expectancy ≠ good qol Years in school ≠ good teaching Do not include hidden economy Other factors (crime corruption poverty) Similar hdi countries could be v diff

Answer 34

One sector dominance (uk financial sector) Capital intensive production Cities vs rural Poor quality jobs Lack of welfare state

Answer 35

- Lower purchasing power so reduced living standards with constant w Erosion of savings Reduce x comp if relatively high W/p spirals Fiscal drag Eval Rate (low and stable) Cause (dp>cp) - dp=growth and lower unemployment, cp=lower growth and higher u Duration (lt=bad as more spirals) Anticipated vs unanticipated Stability (volatility is bad)

Answer 36

+ Reduce panic Increase stability Prevents bank runs - Moral hazard Banks may not hold sufficient liquidity Regulatory capture

Answer 37

Speculation and market bubbles (xs risk) Asymmetric info (moral hazard and adverse selection) - externalities (xs risk) Market rigging (collusion)

Answer 38

- Conflict of objectives Size of output gap Gov finances Consumer and business confidence needs to be high Time lags

Answer 39

+ More accurate than claimant count Internationally agreed upon measure - Expensive to collect data Sample may not be representative Disparities unknown Under employed counted as fully employed

Answer 40

Borrowing required for infrastructure Inevitable when economy experiences severe external shock Rational to borrow to I when bond yields are low Can become partially self financing with more t

Answer 41

They have fops produce g/s more efficiently and better than other countries

Answer 42

Transport Ex rate Legal docs Reqs Market research Translations

Answer 43

D/s of x/m Relative inflation rates Ex rate movements

Answer 44

D for x-m tends to be inelastic in sr

Answer 45

+ Productivity More jobs (hospitals dentists gps) Happiness - Cost Excludability

Answer 46

Poorest may find it hard to start businesses No savinfs Lack of assets for collateral No assets Low access to credit

Answer 47

Manufactured goods are yed elastic Primary goods are yed inelastic So in lt p of m increases faster than p of x

Answer 48

How causes Int competitiveness Q of x and m Ped of x and m (current account so ad)

Answer 49

Prebisch singer hypothesis Productivity Tech

Answer 50

Use revenue from st swings in primary p to diversify and reduce dependency on primary products

Answer 51

+ Data is easy to collect No cost - Can be manipulated by gov to seem smaller Difficult to compare between countries Excludes people who don’t claim

Answer 52

Personal inflation rates differ (average family) P fluctuation of food electric gas (cope cpi) Housing costs (cpi h) Basket updates too slow

Answer 53

Alcohol duty Cigarette duty Sugar tax Fuel duty Air passenger duty

Answer 54

+ Fills savings gap Reduces poverty Low interest rates reduce burden Empower women - Businesses not always successful (how will loan be paid back) Lenders can still apply high ir and how time frames Loans not big enough to reduce poverty (spent on c)

Answer 55

More likely in developing countries Capital flight Lower fdi Lower infrastructure More military spending (even after war ends)

Answer 56

+ Reduces uncertainty increasing fdi Lower trade costs by reducing hedging More discipline for domestic producers by eliminating fluctuations (only way to increase comp is to improve product - can’t rely on depreciation) - Trade offs Large levels of foreign currency reserves needed Speculative attacks (not necessarily correct ppp value)

Answer 57

New and improved Roads/motorways Railways Airports/runways Bridges Ports Schools Hospitals Water Electric Sewage Telephone Internet Flood defence

Answer 58

Deposits St borrowing (inter bank and boe) Lt borrowing (issuing shares and corporate bonds) Shareholders funds Rp

Answer 59

Buy low and sell high Excessively high estimates of future p can create a market bubble and overpaying for assets Eventually d and p decrease leading to worthless assets and huge debts if leveraged Everyone selling will exacerbate p falls

Answer 60

When the most likely buyers are those the seller would prefer not to sell to due to imperfect info Eg with health insurance

Answer 61

Where traders/bankers/intermediaries collude to manipulate markets and make high profits Can occur if punishment and enforcement is weak

Answer 62

- Dp i Increases ca deficit Negative impact on savers Time lags (has to go through transmission mechanism) Liquidity trap (ir lose effectiveness after hitting a lb) Eval Depends on size of output gap Consumer and business confidence Banks willingness to lend and pass on full cuts Size of rate cut

Answer 63

+ Reduces dp i Improves ca deficit More confidence and improvement of gov finances Over time can reduce cost of borrowing by reducing coupons as less risky More flexibility for fiscal policy Less crowing out and xi - D side shocks possible Low g on education health infrastructure High t means lower living standards Laffer curve may mean lower t Risk of more y inequality of reducing benefits or increasing regressive taxes Eval Is it necessary to run a surplus (state of gov finances) Gov finances could look worse (debt/gdp Policies used (both lower g and higher t not needed) Stage of economic cycle

Answer 64

If official bank rates decrease Lower commercial bank rates Higher d for housing as lower mortgage costs More confidence as people think lower rates = more future growth Depreciated ex rate as hot money outflows increase s Higher dom and external d increasing total d Higher dom i Import i Increased total i

Answer 65

+ Lower dp i and cp i Cheaper m so better living standards More efficiency to compete with low cost m - Lower growth Ca deficit due to (x-m) Higher u in x industries Higher u in dom industries as they can’t compete with low cost m

Answer 66

+ Increase ad More employment in x industries - Cp and dp i

Answer 67

Extent of rate change Ped for x and m (Marshall Lerner) Protectionism

Answer 68

- Corruption (no guarantee where g is going) Dependence + aid fatigue Loan repayments can lead to indebtedness problems Increase y inequality as more focussed on secondary sector Aid may only be given to middle income countries of political or economic interest so poorer and less influential countries lose out Donor countries may influence policies

Answer 69

Lower ex rate to increase employment Lower ex rate to improve ca deficit Increase ex rate to lower inflation Maintain fixed ex rate Stabilise floating ex rate

Answer 70

+ No need for currency reserves Freedom for dom monetary policy Potentially partially correct ca deficit Low risk of speculative attacks increasing stability as less risk of over or under valuation - Volatility (left to s and d) Autocorrection of deficit unlikely Low ex value causes m i

Answer 71

Srpc If u decreases d for workers increases increases w and costs therefore p and i u decreasing causes more consumer confidence increasing c … and i

Answer 72

+ Employment and skills Eps Comp and lower p - Exploit workers by giving low w Force local firms out of business Relocate and cause mass u Withdraw profits to country with low tax rates so original country won’t receive tax revenue Influence gov policies

Answer 73

Pta Fta Customs union Common/single market / economic union Monetary union Full economic integration

Answer 74

+ Non fluctuating ex rate for smaller countries increasing stability Lower cost for currency exchange More confidence and I Currency more stable against speculation P between countries easier to compare - Loss of monetary policy autonomy (ir and qe) No potential to alter ex rate to increase trade performance (for x based growth) High cost of currency conversion (reprinting, collecting, menus, databases) Lack of fiscal union (reckless members destabilise whole union)

Answer 75

Fdi with repatriated profits Foreign workers Dom rich people sending y elsewhere (high tax or political instability)

Answer 76

Tech R and d Factories Machines Software Vehicles

Answer 77

+ infant industry protection (allows inefficiencies and industry may never be big enough) protect against dumping (hard to prove + strict retaliation if false) protect against structural U (if already losing CA gov is extending inevitable process) protect product standards and ban certain goods increase gov rev (not a lot) improve ca deficit (lower M) - retaliation so no diff avoid risk of over specialisation - market distortion (higher p, lower cs, lower choice) production inefficiencies (loss of world ae) retaliation (increases distortion and makes inefficiencies worse) regressive eval size of measures elasticity of d/s

Answer 78

+ Larger market = greater demand leads to higher eos as higher q so more growth so fiscal dividend lower u lower costs and prices - high int comp (more efficiency) means lower costs For consumers = more choice, more quality, access to goods that cant be produced domestically Tech transfer means more I and better products exploit own ca = specialisation gains so higher ae and x leads to ad etc free movement of capital and labour Trade creation so cheaper raw mats and cheaper products trickle down effect st profits used to diversify - more inequality (no trickle down effect) worker exploitation from mncs structural u specialisation = overreliance (greater risk of external shocks+instability - trade imbalances) environmental costs withdrawal of profits and labour to home country trade diversion high immigration if uncontrolled diversify=need high skilled labour (from where) coincidence of wants Prebisch singer hypothesis

Answer 79

opp costs how will it be funded: High servicing = opp cost spending cuts in future (health/education) --> burden poor future tax rises likely (regressive) High borrowing = crowding out ricardian equivalence if mf is limited is it worth it G is xi and ai Eval Cost of borrowing Forecast impact of i (real value of debt decrease) Value judgements about how best to fund future public services Which generations should bear the costs of doing it

Answer 80

elasticity of loanable funds (elastic = change in ir is minimal) qe can increase s to reduce ir (so not inevitable that higher ND means higher general ir)

Answer 81

debt forgiveness (- as not receiving owed debts) international death duties international inheritance taxes

Answer 82

+ contributions to EU can be low % of gdp - forced to follow eu regs (costs and red tape) could get trade benefits from ftas instead uk may not benefit from some things money is spent on UK skilled workers might migrate elsewhere

Answer 83

increase in ir cut in g raise t increase fx rate stocks (financial)/housing crash pandemic

Answer 84

final value of all goods/services produced in an economy in a year

Answer 85

adding up all factor incomes in an economy in a year (all w profits interest rent)

Answer 86

adding up all c i g (x-m) in an economy in a year (expenditure on all g/s produced in an economy in a year)

Answer 87

contractionary monetary policy more likely (since its central banks job to reduce i) and better suited (more avenues in transmission mechanism so more likely to have an impact)

Answer 88

rebalance economy (avenue for future growth in x) more growth = more jobs y standard of living

Answer 89

Inflation Inequality Fuels speculative bubbles

Answer 90

ulcs (productivity min w) labour flexibility labour skills tax regimes infrastructure regulations economic stability